America's productivity challenge

November 14, 1984

AMERICANS have always been at their best when confronted with a major challenge - whether that meant pushing a railroad across an untamed continent, putting a man on the moon, or seeking to aid a war-torn Europe after World War II.

We mention all this in regard to one of the interesting footnotes to the current United States economic recovery: namely, that productivity - i.e., the output of goods and services produced in an hour of paid working time - has once again shown improvement after a significant historical downturn in the 1960s.

It is absolutely essential that the recent gains that have been made in US productivity be maintained and, in fact, increased. Looked at in purely economic terms, the issue of productivity is admittedly a dry subject, perhaps beyond the interest of most Americans. But when considered in a broader setting - namely, the ability of people to turn out services and products that actually generate new wealth and help larger numbers of people in more efficient and useful ways - the productivity issue takes on an importance that warrants thoughtful consideration by the public at large and the nation's lawmakers in particular.

Back in the 1950s and early '60s, labor productivity in the US nonfarm sector was growing at around 3 percent a year. By the mid-1960s, however, it began to slump. For the period from 1973 to 1979, for example, productivity grew at around 1 percent - a flat and lackluster rate. By contrast, many of the major industrial competitors of the United States - especially Japan - were posting sharp increases in productivity. The upshot was to make US companies less competitive vis-a-vis overseas producers.

Now, productivity is again on the rise, growing, for example, at a rate of some 3.6 percent for the first two quarters of 1984. What is now in debate among many economists is whether that gain will continue or whether it is merely a cyclical factor common to most recoveries. Typically, productivity increases in a postrecession economy, because industries step up production using existing workers, and lengthening their hours of work, before hiring new workers.

Some economists now believe that productivity will grow at an annual rate of 2 percent to 3 percent throughout the 1980s, in part because of stepped-up spending on plant and equipment and better efficiency by workers, as well as less government regulation from the conservative Reagan administration. Other economists, however, are not so sure, noting that US companies as a whole tend to be too top-heavy with office personnel and other clerical-administrative workers in relation to leaner, more efficient operations abroad. This ''top-heavyness'' of US producers tends to work against gains in productivity.

What does all this mean for the American people and Congress? Two things, it would seem to us:

* Washington should weigh carefully any effort to curb or modify two key tax laws directly benefiting businesses. They are investment credits for businesses and 1981 business depreciation laws. The measures have enabled companies to save billions of dollars on new plant and equipment - which tend to boost productivity. But since the laws also contribute to major tax losses, there is now interest among many federal officials in abolishing or sharply limiting the measures, as part of a new tax reform plan. Abolishing both sets of laws, according to tax analysts, could mean a gain of some $59 billion in additional revenues during fiscal year 1985 alone.

But such a revenue gain would come at the expense of much-needed investment in new plant and equipment.

* Companies and individuals must continue to seek ways to increase efficiency in the workplace, while unions, for their part, must continue to show restraint on the wage front.

A rise in the rate of productivity is in the best interest of all Americans.